US Stocks Gain; S&P 500 Doubles Its Financial-Crisis Low

JonathanCheng

The Standard & Poor's 500-stock index doubled from its financial-crisis low as the latest geopolitical worries weighed against an encouraging package of corporate earnings and takeover news.

Wednesday afternoon in New York, the S&P 500 was trading at 1336.11, up about eight points and hovering above double its intraday low of 666.79 on March 6, 2009.

The Dow Jones Industrial Average gained 62 points, or 0.5%, to 12289, while the Nasdaq Composite advanced 22 points to 2826.

The gains came despite a midday pullback after Israel's foreign minister warned that two Iranian warships crossing the Suez Canal into the Mediterranean Sea were "provocations" that Israel couldn't ignore.

With stock prices having doubled off the lows, the market capitalization of the S&P 500 is now about $12 trillion, compared with the $6.9 trillion during the selloff in early 2009. The S&P 500's market capitalization, which reflects shifts in membership and share counts, needs to rise only another 11% to set an all-time high, according to Standard & Poor's.

"In less than two years, the S&P 500 has doubled, which is great for those people that were prudent enough to stay in, but they've got to be cautious about overconfidence--we know that corrections happen quite regularly," said Erik Davidson, managing director of investments at Wells Fargo Private Bank, who pointed to low readings on the CBOE Market Volatility Index known as the "fear gauge," as well as signs of higher-than-average bullishness among individual investors.

"When you're up 100% and you've got this irrational exuberance, the only thing we have to fear is the lack of fear--that's when you've got to be afraid, as with tech or housing or Japanese stocks before," Davidson said. "People are disappointed that they've missed out on the 100% rally, and people are jumping back in because things have gotten 'back to normal.' That's when you've got to start feeling afraid."

Investors also were watching minutes from the latest meeting of the Federal Reserve's Federal Open Market Committee, which showed officials more optimistic about the U.S. economic outlook, raising their growth outlook for 2011. Officials also expected inflation to stay muted and unemployment to remain high, which suggests the central bank will likely follow through with its quantitative-easing effort to support the economy.

Wednesday's strength came from the materials and energy sectors, while J.P. Morgan Chase and Hewlett-Packard were the biggest gainers among the Dow components, rising 2.3% and 2.1%, respectively. Verizon Communications dragged on the downside, falling 1%.

Providing the market with a boost was U.S. home construction, which rose 15% in January to the highest level since September. Producer prices also showed muted gains, which could temper inflation concerns.

However, market watchers noted out that the housing gains were boosted by multifamily homes, a volatile slice of the housing market, while producer-price inflation was much higher than expected.

"The numbers were not fantastic," said Anthony Chan, chief economist at J.P. Morgan Private Wealth Management. Even so, he added, "the status quo view that this recovery is proceeding on target is maintained by these numbers."

On the corporate front, Genzyme gained 1.4% after agreeing to the terms of a long-awaited takeover by French pharmaceutical group Sanofi-Aventis. Sanofi will pay $20.1 billion along with a series of milestone payments based on the performance of certain drugs. Genzyme separately reported stronger earnings, sales and margins in the fourth quarter. Sanofi gained 3.5% in Paris.

Discount retailer Family Dollar Stores surged 22% to $53.67 after the company said it received an unsolicited takeover bid from Trian Group valued at between $55 and $60 a share.

In earnings news, Dell jumped 13% after the computer maker reported a surge in profits, thanks to strong demand from corporate customers and lower component costs.

Deere gained 2% after fiscal first-quarter earnings more than doubled, helped by agricultural-equipment sales in the U.S. and Canada.

Comcast gained 4.7% after beating consensus estimates on profits and revenue, while also increasing its annual dividend and speeding up its share buyback plan. The Philadelphia cable company reported a 6.6% increase in fourth-quarter earnings after recently completing its deal to acquire a majority stake in NBC Universal.

Borders Group was suspended from trading after filing for Chapter 11 bankruptcy protection and announcing it would close about 30% of it stores nationwide in coming weeks. Borders shares have fallen 75% this year, and last traded at 23 cents.

The dollar edged lower, while oil rose to add 0.8% after the Iranian news. Gold edged higher, while the yield on the 10-year Treasury note edged up to 3.62%.

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